ENTREC CORPORATION Interim Consolidated Financial Statements (unaudited) March 31, 2016

Transcription

1 ENTREC CORPORATION Interim Consolidated Financial Statements,

2 REVIEW OF INTERIM FINANCIAL STATEMENTS Under National Instrument , Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim consolidated financial statements, the statements must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor. The accompanying unaudited interim consolidated financial statements of the Company have been prepared by ENTREC Corporation management. The Company s independent auditor has not performed a review of the accompanying unaudited interim consolidated financial statements in accordance with the standards established by CPA Canada for a review of interim financial statements by an entity s auditor.

3 Interim Consolidated Statements of Financial Position As at (thousands of Canadian dollars) December 31 ASSETS Current assets Cash Trade and other receivables 25,600 28,366 Income taxes receivable Inventory 2,325 2,374 Prepaid expenses and deposits 1,626 2,559 30,236 33,754 Non-current assets Long-term deposits and other assets Property, plant and equipment 235, ,158 Intangible assets 2,154 2,457 Deferred income taxes 2,110 2,019 Total assets 270, ,479 LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities Trade and other payables 8,989 10,868 Notes payable 2,294 2,294 Current portion of deferred leasehold inducements Current portion of long-term debt (note 5) 932 1,051 Current portion of obligations under finance lease (note 6) 1,552 1,911 14,376 16,733 Non-current liabilities Deferred leasehold inducements 9,632 9,784 Long-term debt (note 5) 128, ,763 Obligations under finance lease (note 6) 1,204 1,653 Convertible debentures (note 7) 22,353 21,927 Deferred income taxes 18,199 19,513 Total liabilities 193, ,373 Shareholders equity Share capital (note 8) 132, ,275 Contributed surplus 9,595 9,589 Deficit (67,325) (62,511) Accumulated other comprehensive income 1,489 1,753 Total shareholders equity 76,076 81,106 Total liabilities and shareholders equity 270, ,479 (see accompanying notes) 3

4 Interim Consolidated Statements of Loss Three months ended (thousands of Canadian dollars, except per share amounts) Revenue 30,613 51,085 Direct costs 25,331 38,620 Gross profit 5,282 12,465 Operating expenses General and administrative expenses 4,511 5,729 Depreciation of property, plant and equipment 6,383 6,574 Amortization of intangible assets Share-based compensation Loss (gain) on disposal of property, plant and equipment 953 (198) 12,201 12,620 Loss before finance items and income taxes (6,919) (155) Finance items (note 11) Finance costs 2,177 2,281 Foreign exchange gain on long-term debt (note 5) (2,632) - Gain on change in fair value of embedded derivative (note 7) - (8) (455) 2,273 Loss before income taxes (6,464) (2,428) Income taxes Current Deferred (243) (62) (1,407) (589) (1,650) (651) Net loss (4,814) (1,777) Loss per share basic (note 10) (0.04) (0.02) Loss per share diluted (note 10) (0.04) (0.02) (see accompanying notes) 4

5 Interim Consolidated Statements of Comprehensive Loss Three months ended (thousands of Canadian dollars) Net loss (4,814) (1,777) Other comprehensive (loss) income Exchange differences on translation of foreign operations (264) 466 Other comprehensive (loss) income for the period (264) 466 Total comprehensive loss for the period (5,078) (1,311) (see accompanying notes) 5

6 Interim Consolidated Statements of Shareholders Equity (thousands of Canadian dollars) Share capital Contributed surplus Deficit Accumulated other comprehensive income Total Balance, December 31, ,870 9,223 (47,877) 1,072 94,288 Net loss - - (1,777) - (1,777) Other comprehensive income Total comprehensive loss (1,777) 466 (1,311) Share-based compensation Shares issued pursuant to exercise of restricted shares 99 (99) Balance,, 131,969 9,356 (49,654) 1,538 93,209 Balance, December 31, 132,275 9,589 (62,511) 1,753 81,106 Net loss - - (4,814) - (4,814) Other comprehensive loss (264) (264) Total comprehensive loss (4,814) (264) (5,078) Share-based compensation Shares issued pursuant to exercise of restricted shares 42 (42) Balance,, 132,317 9,595 (67,325) 1,489 76,076 (see accompanying notes) 6

7 Interim Consolidated Statements of Cash Flows Three months ended (thousands of Canadian dollars) Operating activities Net loss (4,814) (1,777) Items not affecting cash: Depreciation of property, plant and equipment 6,383 6,574 Amortization of intangible assets Amortization of deferred financing costs Foreign exchange gain on long-term debt (2,632) - Amortization of deferred leasehold inducements (152) (152) Share-based compensation Loss (gain) on disposal of property, plant and equipment 953 (198) Gain on change in fair value of embedded derivative - (8) Deferred income taxes (1,407) (589) (803) 4,807 Net change in non-cash operating working capital (note 12) 1,409 1,516 Cash provided by operating activities 606 6,323 Investing activities Purchase of property, plant and equipment (167) (13,101) Purchase of intangible assets (2) (127) Proceeds on disposal of property, plant and equipment 3,883 1,847 Change in long-term deposits and other assets (11) 2 Cash provided by (used in) investing activities 3,703 (11,379) Financing activities Proceeds from issuance of long-term debt, net of issuance costs 6,338 12,240 Repayment of long-term debt (9,512) (6,363) Repayment of obligations under finance lease (1,147) (420) Cash (used in) provided by financing activities (4,321) 5,457 Net change in cash (12) 401 Cash, beginning of period Cash, end of period Supplemental cash flow information (note 12) (see accompanying notes) 7

8 Three Months Ended, 1. Nature of operations ENTREC Corporation ( ENTREC or the Company ) is an employee-owned heavy haul transportation and crane solutions provider to the oil and natural gas, construction, petrochemical, mining and power generation industries. The common shares of ENTREC trade on the Toronto Stock Exchange (the Exchange ) under the trading symbol ENT. The Company s head office is located in Acheson, Alberta. The Company s registered office is located at 1400, th Avenue SW, Calgary, Alberta T2P 3N9. ENTREC s operations follow a slightly seasonal pattern, with revenue traditionally being lower in the three months ending June 30 and the three months ending December 31 than in the other quarters of the year. Due to this seasonality, the revenue and net loss reported for the three months ended, may not reflect that of revenue and net loss on an annual basis. The Company s unaudited consolidated interim financial statements for the three months ended, were authorized for issuance in accordance with a resolution of the Board of Directors on May 11,. 2. Basis of presentation The unaudited interim consolidated financial statements for the three months ended, were prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting. The unaudited interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Company s audited annual consolidated financial statements for the year ended December 31,. The accounting policies adopted in the preparation of the Company s unaudited interim consolidated financial statements are consistent with those followed in the preparation of the Company s audited annual consolidated financial statements for the year ended December 31,, subject to the accounting changes noted in note 4. The preparation of these unaudited interim consolidated financial statements requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, revenues, and expenses. Actual results may differ from these estimates. The significant judgments made by management in applying the Company s accounting policies and the key sources of estimation uncertainty were consistent with those that applied to the Company s December 31,, audited annual consolidated financial statements. These unaudited interim consolidated financial statements are presented in Canadian dollars, the Company s functional currency. The unaudited interim consolidated financial statements were prepared on a historical cost basis, except for share-based payment arrangements and embedded derivatives that are measured at fair value. Financial figures throughout the text and in tables are rounded to the nearest thousand (000), except where otherwise indicated. 3. Basis of consolidation The unaudited interim consolidated financial statements include the accounts of ENTREC and its subsidiaries as at, and for the period then ended. Subsidiaries are fully consolidated from their effective date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Unrealized exchange gains and losses on foreign subsidiaries are recognized in accumulated other comprehensive income and subsequently recognized in net income in the event of disposal. The subsidiaries statements of financial position were prepared as at,, using consistent accounting policies. All inter-company balances were eliminated in full. 8

9 Three Months Ended, 4. Accounting changes Future accounting changes IFRS 9 Financial Instruments In July 2014, the International Accounting Standards Board (IASB) issued IFRS 9 Financial Instruments to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 provides a revised model for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell nonfinancial items. In addition, IFRS 9 includes a single expected-loss impairment model and a reformed approach to hedge accounting. This standard is effective January 1, 2018, on a retrospective basis subject to certain exceptions. ENTREC is evaluating the potential effect that the adoption of IFRS 9 could have on its financial position or results of operations. IFRS 15 Revenue from Contracts with Customers In May 2014 the IASB and the Financial Accounting Standards Board (FASB) issued their joint revenue recognition standard, IFRS 15 Revenue from Contracts with Customers, effective for annual periods beginning on or after January 1, In July, the IASB approved a one-year deferral of the effective date of IFRS 15. As a result of the decision, IFRS will be effective for annual reporting periods beginning on or after January 1, Entities will continue to be permitted to early adopt the standard. ENTREC is evaluating the potential effect that the adoption of IFRS 15 could have on its financial position or results of operations. IFRS 16 Leases In January the IASB issued a new standard on leases, IFRS 16 Leases. IFRS 16 will require lessees to recognize assets and liabilities for most leases under a single accounting model for which all leases will be accounted for, with certain exemptions. For lessors, IFRS 16 is expected to have little change from existing accounting standards (IAS 17 Leases). IFRS 16 will be effective for annual periods beginning on or after January 1, Early application is permitted, provided the new revenue standard, IFRS 15 has been applied, or is applied at the same date as IFRS 16. ENTREC is evaluating the potential effect that the adoption of IFRS 16 could have on its financial position or results of operations. 5. Long-term debt The Company has a 240,000 senior secured asset-based credit facility (the ABL Facility ) with a syndicate of lenders led by Wells Fargo Capital Finance Corporation Canada ( Wells Fargo ). The ABL Facility is being used to fund ENTREC s capital expenditures and for general corporate purposes. The ABL Facility carries a five year term and requires payments of interest only until its maturity in March Amounts borrowed under the facility bear interest, at ENTREC s option, at bank prime, bankers acceptance or LIBOR rates, plus a credit spread based on a sliding scale, determined by the Company s excess borrowing capacity (note 15). The Company may prepay all or any of the ABL Facility at any time. The ABL Facility contains an uncommitted accordion feature to increase the facility by 75,000 to 315,000. In addition, the Company has a 5,000 operating facility ( Operating Facility ) with Canadian Western Bank to finance ENTREC s day-to-day operations. The Operating Facility carries a five year term and requires payments of interest only until its maturity in March Amounts borrowed under the Operating Facility bear interest at the bank s prime lending rate plus 75 basis points. 9

10 Three Months Ended, 5. Long-term debt (continued) The ABL Facility and Operating Facility are collateralized by substantially all of ENTREC s assets, including ENTREC s accounts receivable and property, plant and equipment. At,, the carrying amount of ENTREC s assets was 270,003. The effective interest rate on the ABL Facility carried in CAD at, was 3.2% and the effective interest rate on the ABL Facility carried in USD at, was 2.7%. As at December 31 Long-term debt ABL Facility carried in CAD 27, ,136 Long-term debt ABL Facility carried in USD (75,147 USD) 97,596 - Long-term debt Operating Facility 3,984 3,542 Long-term debt finance contracts 1,099 1,250 Less: unamortized transaction costs (1,028) (1,114) 129, ,814 Less: current portion (932) (1,051) 128, ,763 Minimum principal repayments required over the next five years as at, were as follows: As at, Amount Within one year 932 After one year but less than five years 129,191 Subsequent to,, the Company drew 5,500 and repaid 1,750 on its ABL Facility. 6. Obligations under finance lease 130,123 During the three months ended,, the Company acquired automotive equipment through finance lease of 305 (three months ended, 60). The Company s obligations under finance lease bear interest at annual rates ranging from 4.3% to 5.4% per annum and are repayable in current monthly blended principal and interest payments of 159, maturing at dates ranging from April to January All of ENTREC s obligations under finance lease are collateralized by automotive equipment with a net book value of 2,673 at, (December 31, 2,968). 10

11 Three Months Ended, 6. Obligations under finance lease (continued) Future minimum lease payments required over the next five years for obligations under finance lease were as follows: As at December 31 Within one year 1,651 2,033 After one year but less than five years 1,239 1,701 Total minimum lease payments 2,890 3,734 Less: amounts representing a weighted average imputed interest rate of 4.7% (December 31, 4.9%) (134) (170) Balance of obligations under finance lease 2,756 3,564 Less: current portion (1,552) (1,911) 1,204 1, Convertible debentures The Company has outstanding 25,300 principal of convertible unsecured subordinated debentures (the Debentures ). The Debentures have an annual coupon rate of 7.00%, payable semi-annually, mature on October 30, 2017 and are convertible, at the holder s option, into common shares of ENTREC at a conversion price of 2.60 per share. The Debentures trade on the Exchange under the symbol ENT.DB. The carrying value of the Debentures at, are reported net of unamortized transaction costs of 2,947 (December 31, 3,373). Prior to October 31,, the Debentures may be redeemed in whole or in part, at ENTREC s option, at a price equal to their principal plus accrued interest thereon, provided the average market price of the common shares on the date on which notice is given is not less than 125% of the conversion price of 2.60 per common share. After October 31,, the Company has the option to redeem the Debentures in whole or in part at a price equal to their principal plus accrued interest. ENTREC may also, at its option and subject to certain conditions, elect to satisfy its obligation to repay all or any portion of the principal of the Debentures that are to be redeemed or repaid at maturity, by issuing common shares. The number of common shares a holder will receive in respect of each Debenture will be determined by dividing the principal of the Debentures that are to be redeemed or repaid at maturity by 95% of the market price of the shares. This will be calculated as the volumeweighted average trading price of the shares on the Exchange for the 20 consecutive days ending five days prior to the applicable event. As the Debentures contain a cash settlement feature, under IAS 32 Financial Instruments: Presentation, the Debentures are accounted for as a compound instrument with a debt component and a separate embedded derivative representing the conversion option. Each component is measured at fair value on initial recognition. The debt component is subsequently accounted for at amortized cost using the effective interest rate method. The embedded derivative is subsequently measured at fair value at each reporting date with gains and losses in fair value recognized through profit or loss. 11

12 Three Months Ended, 7. Convertible debentures (continued) Finance-related revenues and expenses associated with the Debentures consisted of: Three Months Ended Interest expense on principal value Notional interest representing accretion expense Less: gain on change in fair value of embedded derivative - (8) As at,, the liability component (excluding the embedded derivative component) of the Debentures had a carrying value of 22,353 and an estimated fair value of 17,584 based on observable market inputs, being the closing price of the Debentures on the Exchange at,. As at, the embedded derivative component had an estimated fair value, based on unobservable inputs, of nil (December 31, nil), calculated utilizing the Black-Scholes valuation model. The following assumptions were used to calculate the estimated fair value of the embedded derivative component of the Debentures: As at December 31 Risk-free interest rate 0.85% 0.85% Expected life 1.08 years 1.33 years Volatility 51.7% 49.6% Distribution yield Nil % Nil % 8. Share capital Authorized - Unlimited number of voting common shares without nominal or par value Authorized Unlimited number of preferred shares Issued - common shares Number of shares Amount As at December 31, 107,725, ,275 Activity during the three months ended, : Shares issued exercise of restricted shares 27, Issued and outstanding at, 107,753, ,317 12

13 Three Months Ended, 8. Share capital (continued) Share purchase warrants Pursuant to the completion of a business acquisition in 2012, the Company granted to the vendors 15,150,000 share purchase warrants, each entitling the holder to acquire one common share of ENTREC at an exercise price of 1.50 per common share at any time from June 1, 2013 to May 31, 2014 (the Expiry Date ). The holder shall not, at any time, be entitled to exercise any portion of the share purchase warrants that would result in the holder owning 20% or more of ENTREC s issued and outstanding common shares. If upon the Expiry Date any portion of the share purchase warrants is not exercisable because such exercise would result in the holder owning 20% or more of ENTREC s issued and outstanding common shares, then the Expiry Date of such portion shall be extended by one year, provided that the Expiry Date may not be extended beyond June 1, During the year ended December 31, 2014, 366,797 common shares were issued pursuant to the exercise of a portion of these share purchase warrants. The Expiry Date on the remaining 14,783,203 share purchase warrants was extended to May 31,. Pursuant to the completion of a separate business acquisition in 2012, the Company granted to the vendors 1,700,000 share purchase warrants, each entitling the holder to acquire one common share of ENTREC at an exercise price of 2.00 per common share. The share purchase warrants expired on October 31,. ENTREC recorded the following activity in the number of share purchase warrants: Number of share purchase warrants Weighted average exercise price () Share purchase warrants outstanding as at December 31, 14,783, Activity during the three months ended, : - - Share purchase warrants outstanding as at, 14,783, Share purchase warrants outstanding as at, 16,486, Share purchase warrants exercisable at, - - Share purchase warrants exercisable as at, 1,700,

14 Three Months Ended, 8. Share capital (continued) The following summarizes the outstanding and exercisable share purchase warrants as at, : Outstanding Exercisable Weighted average exercise price () Number of share purchase warrants Weighted average life remaining (years) (1) Weighted average exercise price () Number of share purchase warrants (2) ,783, ,783, Notes: (1) The share purchase warrants exercisable at 1.50 per warrant are subject to extension in accordance with the terms of the share purchase warrants as describe above. (2) The holder of the share purchase warrants exercisable at 1.50 per warrant shall not, at any time, be entitled to exercise any portion of the share purchase warrants that would result in the holder owing 20% or more of ENTREC s issued and outstanding common shares. 9. Share Option Plan and restricted share plan Share Option Plan The Company has adopted an incentive share option plan in accordance with the policies of the Exchange (the Share Option Plan ) for the benefit of its directors, officers, employees and other key personnel. The Share Option Plan provides that the option terms and price shall be fixed by the directors subject to the price restrictions and other requirements of the Exchange. ENTREC recorded the following activity in the number of share options issued under the Share Option Plan: Number of share options Weighted average exercise price () Share options outstanding as at December 31, 5,925, Activity during the three months ended, : Share options forfeited (662,500) 0.87 Share options outstanding as at, 5,262, Share options outstanding as at, 3,100, Share options exercisable as at, 2,293, Share options exercisable as at, 1,675,

15 Three Months Ended, 9. Share Option Plan and restricted share plan (continued) The following summarizes the outstanding and exercisable share options as at, : Outstanding Exercisable Weighted average exercise price () Number of share options Weighted average life remaining (years) Weighted average exercise price () Number of share options ,350, ,350, , , , , , , , , , , , , , , , , ,262, ,293,750 During the three months ended,, a share-based compensation recovery of 80 (three months ended, shared based compensation expense 85) was recognized pursuant to ENTREC s Share Option Plan with an offsetting debit (credit) to contributed surplus. Restricted share plan The Company has established an employee share ownership plan, known as the restricted share plan, under which key employees and directors are granted the right to receive an allotted number of common shares from treasury at a deemed value equal to the observable market price of ENTREC s common shares at the grant date. ENTREC recorded the following activity in the number of restricted shares: Number of restricted shares Restricted shares outstanding as at December 31, 2,509,436 Activity during the three months ended, : Restricted shares granted 1,229,498 Restricted shares exercised (27,900) Restricted shares forfeited (233,900) Restricted shares outstanding as at, 3,477,134 15

16 Three Months Ended, 9. Share Option Plan and restricted share plan (continued) During the three months ended,, share-based compensation expense of 128 (three months ended, 147) was recognized pursuant to ENTREC s restricted share plan with an offsetting credit to contributed surplus. Of the restricted shares outstanding at, 984,436 (, 816,954) were exercisable. On January 1, the Company granted 1,229,498 restricted shares to employees, including 64,000 to officers and 66,665 to directors of the Company. The restricted shares granted to employees and officers vest at 20% per year over five years commencing January 1, The restricted shares granted to directors vest immediately prior to the Company s next annual general meeting of shareholders. All of the restricted shares expire on January 1, Common shares reserved for issuance pursuant to restricted share awards granted, together with any common shares reserved for issuance pursuant to options to purchase common shares under the Share Option Plan, shall not exceed 10% of the Company s issued and outstanding common shares, from time to time. 10. Loss per share Three months ended ( and number of shares in 000 s) Net loss (4,814) (1,777) Basic weighted average number of shares 107, ,452 Dilutive effect of outstanding share options, restricted shares and warrants - - Diluted weighted average number of shares 107, ,452 Loss per share basic (0.04) (0.02) Loss per share diluted (0.04) (0.02) For the three months ended, and, all of the Company s outstanding share options, restricted shares and share purchase warrants were anti-dilutive and, therefore, were not considered in computing diluted loss per share. For the three months ended, and, the outstanding Debentures were also anti-dilutive and not considered in computing diluted loss per share. 16

17 Three Months Ended, 11. Finance costs Three months ended Interest long-term debt 1,212 1,358 Interest notes payable Interest convertible debentures Interest obligations under finance lease Interest bank indebtedness and other short-term obligations 3 4 Finance costs 2,177 2,281 Foreign exchange gain on long-term debt (2,632) - Gain on change in fair value of embedded derivative (note 7) - (8) Net finance costs (455) 2, Supplemental cash flow information a) Changes in non-cash operating working capital: Three months ended Trade and other receivables 2,548 1,604 Inventory 49 (54) Prepaid expenses and deposits Income taxes receivable (242) 1,189 Trade and other payables (1,879) (2,074) 1,409 1,516 b) Non-cash investing and financing activities: During the three months ended,, ENTREC acquired 305 (three months ended, 60) of automotive equipment through obligations under finance lease (note 6). c) Income taxes received and interest paid: Three months ended Income taxes received - 1,251 Interest paid 1,259 1,343 17

18 Three Months Ended, 13. Segmented reporting The Company operates in one operating segment. Management assesses performance and makes resource decisions based on the results of its consolidated operations. ENTREC s operations are conducted in the following geographic locations: Three months ended Revenue Canada 28,044 46,244 United States 2,569 4,841 30,613 51,085 Revenues are allocated to the geographic region which completed the services. As at December 31 Property, plant and equipment and intangible assets Canada 215, ,823 United States 21,810 22, Related-party transactions Subsidiaries 237, ,615 As at,, the Company owned 100% of the following subsidiaries, which were consolidated in the Company s consolidated financial statements: Name ENTREC Engineering Ltd. ENTREC Lift Services Inc. ENTREC Alberta Ltd. ENTREC Heavy Haul Services Inc. ENTREC Cranes & Heavy Haul (Western) Ltd. ENTREC Cranes & Heavy Haul Inc. Jurisdiction of Incorporation Alberta, Canada Alberta, Canada Alberta, Canada Alberta, Canada British Columbia, Canada Arizona, United States 18

19 Three Months Ended, 14. Related-party transactions (continued) Transactions with related parties During the three months ended,, the Company incurred professional fees of 34 (three months ended, - 72) from a partnership of which ENTREC s corporate secretary is a partner. The fees in and were incurred for general legal services. During the three months ended, the Company generated revenue of 4,613 (three months ended, 3,861) and incurred administrative expenses of 113 (three months ended, 132) with the JV Driver Group of Companies, a group of companies under common control that hold in excess of 10% of the issued and outstanding common shares of ENTREC and of which an ENTREC director is an officer and director. During the three months ended, the Company incurred direct costs of 86 related to transportation services (three months ended, nil) with the Manitoulin Group of Companies, a group of companies under common control that hold in excess of 10% of the issued and outstanding common shares of ENTREC and of which an ENTREC director is an officer. During the three months ended, the Company incurred direct costs of 105 (three months ended, 105) related to the lease of premises from a company of which an ENTREC officer owns 25% of the outstanding common shares. During the three months ended, the Company incurred direct costs of 45 (three months ended, 17) related to the lease of premises from a company of which two ENTREC officers own a combined 28% of the outstanding common shares. These transactions were conducted in the normal course of operations and were measured at their fair values, which were established and agreed to as consideration by the related parties. At,, amounts owing from these related parties and included in trade and other receivables was 4,560 (December 31, 6,360). At,, amounts owing to these related parties and included in trade and other payables was 223 (December 31, 101). Included in prepaid expenses and deposits at, was 34 (December 31, 84) pursuant to related-party transactions. 19

20 Three Months Ended, 14. Related-party transactions (continued) Key management personnel compensation The Company s key management personnel comprise its directors and officers. Aggregate compensation during the periods presented was as follows: Three months ended Salaries and other short-term employee benefits Termination benefits Directors fees Share-based compensation expense Total compensation to key manager personnel The amounts disclosed in the table are the amounts recognized as an expense related to key management personnel and directors during the respective reporting periods. 15. Capital management ENTREC s overall capital management objectives are: (i) to finance its operations and growth-oriented activities; and (ii) to limit risk to an acceptable level in order to maximize shareholder value. To accomplish these objectives, ENTREC uses a combination of debt and equity. The mix is reviewed and adjusted appropriately along with changes in economic conditions. The capital mix is also regularly monitored to ensure all externally imposed capital requirements on ENTREC s debt, such as certain financial covenants, are fulfilled. Capital is defined by ENTREC to include all funded debt (convertible debentures, long-term debt, notes payable, obligations under finance lease, and the current portions thereof) and shareholders equity. The calculations of funded debt and total capital are as follows: As at December 31 Current portion of long-term debt 932 1,051 Current portion of obligations under finance lease 1,552 1,911 Long-term debt 128, ,763 Notes payable 2,294 2,294 Convertible debentures 22,353 21,927 Obligations under finance lease 1,204 1,653 Funded debt 156, ,599 Shareholders equity 76,076 81,106 Total capital 232, ,705 20

21 Three Months Ended, 15. Capital management (continued) Debt management The ABL Facility and Operating Facility are subject to compliance with springing financial covenants. ENTREC is subject to a springing senior debt to Bank EBITDA ratio covenant of 4.5 times and a springing capital expenditure covenant, which limits ENTREC s annual capital expenditures to 120% of the Company s annual plan, should excess borrowing capacity decline to an amount below the lesser of: (i) 12.5% of the total available borrowing capacity, or (ii) 12.5% of the total ABL Facility of 240,000. ENTREC is also subject to a springing capital expenditure covenant and is restricted from paying dividends or purchasing shares under its NCIB should the senior debt to Bank EBITDA ratio increase above 4.25 times. The definition of Bank EBITDA is in accordance with the lending agreement and is calculated based on the lender s interpretation, which may not be equal to individual financial statement figures. Bank EBITDA is calculated on a trailing 12-month basis and is defined in the lending agreement to be net income (loss) before extraordinary gains and losses, interest income and expense, gains and losses on disposals of property, plant and equipment and other long lived assets, income taxes, depreciation and amortization, non-cash share-based compensation, unrealized risk management or foreign exchange losses, losses on the revaluation of embedded derivatives, and impairments of property, plant and equipment, intangible assets and goodwill. At,, the senior debt to Bank EBITDA ratio was At,, the total amount available under the ABL Facility was 184,249. The total amount available under the ABL Facility is calculated from the value of accounts receivable and property, plant and equipment. Based on borrowings and letters of credit utilized at,, the Company had excess borrowing capacity of 59,299. As the excess borrowing capacity exceeded 23,031 or 12.5% of the total borrowing capacity, ENTREC was not subject to the senior debt to Bank EBITDA ratio financial covenant at,. As the senior debt to Bank EBITDA ratio exceeded 4.25 times at,, ENTREC was restricted from paying dividends or purchasing shares under its NCIB. In addition, ENTREC s capital expenditures for the year ending December 31, will be limited to 120% of the annual capital expenditure plan. For the year ending December 31,, 120% of the Company s annual capital expenditure plan, for the purposes of the capital expenditure covenant, is 9,270. Under the terms of the ABL Facility, ENTREC is also restricted from voluntarily prepaying subordinated debt obligations exceeding 1,000, paying dividends or purchasing shares under its NCIB, and completing business acquisitions exceeding 10,000 in any calendar year should its excess borrowing capacity not exceed the levels of 62,500, 56,250, and 43,750, respectively. With an excess borrowing base capacity of 59,299, ENTREC was restricted from voluntarily prepaying subordinated debt obligations in excess of 1,000 at,. 21

22 Three Months Ended, 16. Commitments, contingencies and guarantees ENTREC has entered into operating leases for office and shop premises, and equipment that provide for minimum annual lease payments as follows: As at December 31 Within one year 11,858 12,413 After one year but less than five years 32,146 33,390 After five years 72,010 73,597 Total minimum lease payments 116, ,400 Total minimum sublease payments expected to be received 3,096 1,278 During the three months ended,, 3,315 was recognized as an expense in respect of operating leases (three months ended, 2,699). Sublease rental income for the three months ended, was 313 (three months ended, nil). Contingencies From time to time ENTREC is subject to claims and lawsuits arising in the ordinary course of operations. The Company carries liability insurance, subject to certain deductible and policy limits, against certain of these claims. As at, the Company was not involved in any legal disputes that would be expected to have a material impact on its financial results. Guarantees a) ENTREC had an outstanding letter of credit at, with a maximum limit of 40 for the benefit of the Minister of Transportation of the Province of British Columbia, drawn under its ABL Facility, relating to transportation permitting requirements in B.C. b) ENTREC had an outstanding letter of credit at, with a maximum limit of 127 for the benefit of Parkland County Planning and Development, drawn under its ABL Facility, relating to certain leasehold improvements. c) In the normal course of business, ENTREC enters into agreements that include indemnities in favour of third parties such as engagement letters with advisors and consultants, and service agreements. ENTREC has also agreed to indemnify its directors, officers, and employees in accordance with ENTREC s constating documents and bylaws. Certain agreements do not limit ENTREC s liability and, therefore, it is not possible to estimate ENTREC s potential liability under these indemnities. In certain cases, ENTREC has recourse against third parties with respect to these indemnities. In addition, ENTREC maintains insurance that may provide coverage against certain claims under these indemnities. ENTREC believes it would be able to satisfy all of the obligations above without disrupting normal business operations. 22

23 Three Months Ended, 17. Financial instruments Foreign currency risk ENTREC is primarily exposed to foreign currency fluctuations in relation to its USD denominated long-term debt and U.S. based operations in North Dakota and Texas. Therefore, there is risk of earnings fluctuations arising from changes in and the degree of volatility of foreign exchange rates arising on foreign assets and liabilities. Under its ABL Facility, ENTREC currently holds 75,147 USD of long-term debt. In addition, although the majority of ENTREC s operations are in Canada, ENTREC continues to expand its operations outside Canada. Based on ENTREC s long-term debt denominated in USD at,, a 5% increase or decrease in exchange rates would change ENTREC s loss before income taxes by approximately 4,880. Based on ENTREC s assets and liabilities held in its U.S. operations at,, a 5% increase or decrease in exchange rates would change ENTREC s other comprehensive income by approximately 160. ENTREC does not currently use derivative financial instruments to reduce its exposure to foreign currency risk. 18. Subsequent Events Acquisition of HighMark Crane Ltd. On May 10,, ENTREC acquired the business and assets of HighMark Crane Ltd. ( HighMark ). HighMark specialized in providing crane rental and operator services and industrial equipment transportation services to customers in the power transmission, mining, and commercial construction industries across Canada. HighMark operated a modern equipment fleet that included nine boom trucks specifically designed to service the power transmission industry as well as several cranes, trucks, trailers and other support equipment. The aggregate consideration paid for the business and assets of HighMark consisted of (i) the issuance of 1,605,286 common shares issued at a deemed price for accounting purposes of 0.30 per share; and (ii) 3,499 in cash (less a holdback of 233). On May 10, and in conjunction with the acquisition of HighMark the Company granted 150,000 share options to an employee. The options are exercisable at 0.30 per common share, vest at 25% per year over four years commencing May 10, 2017 and expire on May 10, Convertible debentures On May 6,, ENTREC announced that the Company will seek approval from the holders of its unsecured Debentures to amend the terms of the Debentures. These amendments will include, among other things, increasing the interest rate from 7.00% to 8.50% effective October 31, ; decreasing the conversion price from 2.60 to 1.00 per share; and extending the maturity date from October 31, 2017 to June 30, ENTREC will also, on October 31, 2017, redeem on a pro rata basis 3,500 of the principal amount of the amended Debentures. For the above amendments to be approved, at least 66 2/3 % of the principal amount of the Debentures voted, must be voted in favour of the amendments at a meeting of holders of the Debentures to be held on June 6,. 23